Sony. Neutral. Not much excitement at CES and decoupling with F/X movement; what's next?

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1 Clients should contact representatives and execute transactions through a J.P. Morgan subsidiary or affiliate in their home jurisdiction unless governing law permits otherwise. Sony Not much excitement at CES and decoupling with F/X movement; what's next? Since Sony s 2QFY13 earnings shock, the stock has gradually recovered and moved sideways. Despite recent positive data points related to PS4 and the company's aggressive smartphone shipment target, we remain cautious given signs of pause in its smartphone growth in Japan post iphone 5S launch, ongoing weak CE products such as DSC and TV, and finally lack of earnings visibility. Lackluster reaction at CES: We think the innovation arc in CE appears to be peaking and with smartphones lacking big, incremental breakthroughs in technology, the mobile device market is becoming crowded and stale. Hence, Sony's strategy to focus on emerging technology may face challenges which could lead to downside risk to Sony s aggressive shipment target for smartphone, TV, and DSC, in our view. Decoupling with F/X movement: Sony used to be highly correlated with F/X movement, and yen depreciation against US$ and EUR was a major driver for the share price. In the last one month+, however, yen weakness didn't help fuel the share price. We believe saturating CE market has overwhelmed the positive F/X impact. The decoupling with F/X movement will probably continue, in our view. Potential risks to our cautious view: Sony appears to be taking steps to reshuffle its business portfolio and downsize employees in electronic segment. Although the progress is still premature, we think any major restructuring would be a catalyst for the share price. Also, recent sellthrough of PS4 shows encouraging signs and could reach 6M units vis-à-vis a target of 5M units, while the impact on earnings is marginal. Share price expectation: The stock is currently trading at 29x FY14E P/E and 24x FY15E P/E. Although we expect earnings to improve throughout our forecast periods, there is a risk to our earnings estimates given shrinking CE market and potential charges associated with restructuring. We maintain our low-end of consensus earnings and PT. Neutral 6758.T, 6758 JT Price: 1,835 Price Target: 1,600 Japan Technology - Semiconductors JJ Park AC Bloomberg JPMA PARK <GO> J.P. Morgan Securities (Far East) Ltd, Seoul Branch Jay Kwon (82-2) jay.h.kwon@jpmorgan.com J.P. Morgan Securities (Far East) Ltd, Seoul Branch Jesper J Koll (81-3) jesper.j.koll@jpmorgan.com JPMorgan Securities Japan Co., Ltd. Price Performance 2,400 2,000 1,600 1, Jan-13 Apr-13 Jul-13 Oct-13 Jan T share price ( ) TOPIX (rebased) YTD 1m 3m 12m Abs 1.8% 0.5% -3.4% 89.6% Rel 1.3% -2.9% -13.6% 43.5% Bloomberg 6758 JT, Reuters 6758.T (YE Mar, bn) 2013/3 2014/3E 2015/3E 2016/3E 2013/3 2014/3E 2015/3E 2016/3E Date of Price 10 Jan 14 Sales 6,801 7,695 7,859 7,908 Sales growth 4.7% 13.2% 2.1% 0.6% 52-Week range $2, Operating Profit OP growth NM NM 48.6% 18.1% Market Cap 1,920BN EBITDA NP growth NM NM 130.4% 23.3% Market Cap US$18.31MN Net profit Share Out. (Com) 1,046MN EPS Price Target 1,600 Free float 29.0% BPS ( ) 2,672 2,773 2,895 2,954 Consensus PT 2,153 Avg daily val 24.9B P/E (x) Price Target End Date 31-Dec-14 Avg daily val (US$) 237.8MM P/BV (x) Difference (%) Avg daily vol. 13.7MM shares ROE (%) Dividend yield (%) 0.0 Net Debt Exchange Rate Source: Company data, Bloomberg, J.P. Morgan estimates. See page 11 for analyst certification and important disclosures, including non-us analyst disclosures. J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

2 Key catalyst for the stock price: Upside risks to our view: Downside risks to our view: Ongoing downside risks to its Electronics businesses, there could be additional restructuring charges. Better-than-expected sell-through of Sony s flagship smartphone line-up. Better-than-expected M/S gains in the image sensor segment. Sudden and substantial yen depreciation. Sudden and substantial yen appreciation. Higher-than-expected restructuring costs. Slower-than-expected economic recovery. Key financial metrics FY12A FY13E FY14E FY15E Valuation and price target basis Revenues ( ) 6,801 7,695 7,859 7,908 Our Dec-14 P/E-based PT is 1,600 which is based on 20x FY15E Revenue growth (%) P/E which is above Japan market P/E of 16.5 given potential EBITDA ( ) operating leverage. EBITDA margin (%) Tax rate (%) Net profit ( ) EPS ( ) EPS growth (%) Sony Annual OP breakdown (%) DPS ( ) BVPS ( ) 2, , , ,953.7 Operating cash flow ( bn) Free cash flow ( bn) Interest cover (X) Net margin (%) Sales/assets (X) Debt/equity (%) Net debt/equity (%) ROE (%) Key model assumptions FY12A FY13E FY14E FY15E /$ /Euro Source: Bloomberg, Company and J.P. Morgan estimates. Source: Company data, J.P. Morgan estimates. Sensitivity analysis OP EPS JPMe vs. consensus, change in estimates ( bn) Sensitivity to FY13E FY14E FY13E FY14E Net Profit FY13E FY14E 5% chg in /$ 13 billion JPMe % chg in /Euro 39 billion Source: J.P. Morgan estimates. Consensus estimates. Comparative metrics CMP Mkt Cap P/E P/BV ROE YTD LC $Mn FY13E FY14E FY13E FY14E FY13E FY14E Stock perf. Sony Corp 1,835 18, LG Electronics Inc 65,500 10, HTC Corp 128 3, Panasonic Corp 1,338 31, Nokia OYJ , Skyworth Digital Holdings Ltd , Nintendo Co Ltd 16,080 21, TCL Corp Apple Inc , Source: Bloomberg, Company and J.P. Morgan estimates. Prices are as of Jan 10,

3 Keynote speech at CES 2014 Sony introduces Xperia Z1 Compact and enhanced 4K TV related products Sony introduces Xperia Z1 Compact which is already sold as Xperia Z1f by NTT Docomo in Japan, to be launched globally starting in Feb. Also Xperia Z1s will be launched as US regional model of Xperia Z1 from T-mobile in Jan. The company unveiled 4K product line ups (BRAVIA TV, Handycam) with 4K contents line ups partnering with Netflix and Youtube. On Jan 7, Sony CEO Mr. Hirai delivered keynote address at the 2014 international CES where the company unveiled new plans including new streaming game and movie services that will give customers greater access to games for PlayStation 2 and PlayStation 3 consoles by cloud service. A planned TV content streaming service will also pull together TV shows and movies for consumers, who will also be able to watch the content on multiple screens within their homes. Mr. Hirai stated the firm will be focusing on emerging tech in the coming year, tapping its advanced optical technologies for medical, agricultural and photographic applications. Sony skin monitors will be able to get a read on medical factors such as blood sugar levels. In addition to the service announcements, Sony announced that it had sold 4.2 million units of its PlayStation 4 console. 4K market is still at early stage Sony released a series of new products (Handycam, projector and VAIO) to enhance collaboration with UHD (4K) TV in Nov and Dec The company s strategy is to boost UHD TV market by expanding other hardware devices which can record or view 4K content. However, there has not been much adoption of 4K content yet. It will take some time until we see both hardware and software of 4K to be mainstream in TV market. Figure 1: UHD TV (sell-through) shipment trend Unit 000s Source: Display research, J.P. Morgan estimates 3

4 Updates on PS4 and smartphone PS4 likely exceeds the current target of 5 million units Sony recently announced that the new PlayStation 4 launched overseas last Nov-Dec sold 4.2 million units through end-cy2013. The PS4 launches in Japan in February, with FY2013 shipments well on course to top the current target of 5 million units. We expect the target could be raised up to 6 million units given the fact that Japan sales accounts for 15% of total PS3 shipment. While additional 1 million shipment may contribute to its sales of JPY 40 billion, we estimate hardware BOM cost is breakeven level at the initial stage. Thus the impact on earnings is marginal, in our view. Doubling up smartphone shipments looks challenging He also unveiled the company aims to ship more than 80 million phones in FY2015 which is roughly double the level of current shipment target of 42 million in FY2013. The company expects growth to continue at this pace over the next two years on demand from the massive US and Chinese markets as well as from emerging economies. However, its market share expansion from non-japan/europe region appears limited given growing speed of smartphone market has peaked out. We have increasing concerns on saturated high-end segment and commoditization risk from Chinese whitebox smartphone makers. We think the company target is challenging given the backdrop of saturated market trend. Business snapshot Reshuffling business portfolio Sony has been reshuffling business portfolios by stating core and non-core businesses under restructuring plan. Last month, the company has released selling non-core assets in entertainment business and termination of OLED TV codevelopment with Panasonic as it will focus on UHD TV. CMOS sensors, a key component for DSC and smartphone Sony has positioned CMOS (complementary metal-oxide semiconductor) sensors as one of the pillars of the firm's growth and seeks to purchase Renesas Electronics' main chip fabrication facility to make image sensors for smartphone and other devices. If negotiations proceed smoothly, Sony will acquire shares in the Renesas unit that operates the Tsuruoka plant in Yamagata Prefecture by March 31. Sony hopes to use the plant to fabricate CMOS sensors, a key component that determines the quality of images shot on smartphones and digital cameras. As shown in below charts, Sony has dominant positions in higher pixel segment for smartphones. Sony aims to commercialize new sensor technologies that deliver differentiating features to both professional- and consumer-use products, thus it needs an additional investment in order to capitalize on demand for these components 4

5 Figure 2: Market share of CMOS sensors (2012, shipment base) Figure 3: Market share of CMOS sensors for mobile devices (2012, shipment base) Source: Techno System Research Source: Techno System Research Potential downsizing in electronic segment Sony will take further steps to restructure its electronic business. Sony will begin offering early retirement to staff in foundering electronic segment starting from January We expect the company may record additional restructuring cost toward fiscal year end. Table 1: Sony business portfolio reshuffle Sell/acquire Announcement Business Asset value/additional capex Related business /report date Asset sold 5-Dec Sold shares of Sky Perfect JSAT Holding 15bn Entertainment business Asset acquire (*1) 18-Dec Acquire Tsuruoka plant from Renesas Electronics 30bn (Estimated additional capex) Devices business Asset sold 24-Dec Sold shares of Gracenote to Tribune company 17bn Entertainment business Restate as non-core 25-Dec Termination on co-development of OLED TV with - Electronic business Panasonic Redefined as core (*2) 29-Dec Cancel sales of its battery business Estimated annual sales of150bn Devices business Staff cut (*3) 31-Dec Offering early retirement to staffs in foundering electronic segment starting from January. - Electronic business Source: Company and Nikkei reports. Note: 1-3 are reported by Nikkei Domestic smartphone market Sign of pause in smartphone sales growth in Japan market Although Sony s smartphone sales in Japan market are estimated to account for 15% of total sales, steady market share expansion of its flagship model of Xperia Z series in Japan market was the major positive factor for the robust sales growth in MP&C segment in 1H13. As we indicated in our note Will PS4 and smartphone be a game changer? on November 9, 2013, robust sales of iphone 5s and 5c in Oct-Dec quarter in Japan market indicates growth momentum for Sony s smartphone shipment will be weaker in Japan and concern about overall margin recovery owing to saturated high-end segment will remain, in our view. 5

6 Table 1: BCN monthly smartphone ranking by electronic retail store sales in Japan Oct 2013 Nov 2013 Rank Carrier Vendor Model Carrier Vendor Model 1 NTT Docomo Apple iphone 5s SoftBank Apple iphone 5s 2 SoftBank Apple iphone 5s NTT Docomo Apple iphone 5s 3 au Apple iphone 5s Au Apple iphone 5s 4 au Apple iphone 5 SoftBank Apple iphone 5c 5 SoftBank Apple iphone 5c Au Apple iphone 5c 6 SoftBank Apple iphone 5 NTT Docomo Sony Mobile Communication Xperia Z1 SO-01F 7 au Kyocera GRATINA KYY06 Au Apple iphone 5 8 au Apple iphone 5c Au Sony Mobile Communication Xperia Z1 SOL23 9 NTT Docomo Sony Mobile Communication Xperia Z1 SO-01F SoftBank ZTE 202Z 10 NTT Docomo Apple iphone 5c NTT Docomo Apple iphone 5c Source: BCN Note: BCN data covers 40% of total electronic retail store sales. Sales of NTT Docomo dealer and outlets are not included in the ranking. Shrinking DSC market Sony has been focusing digital camera resources on value-added mirrorless singlelens models and scaling down loss making entry level compact digital camera with fewer releases. In November, Sony unveiled two models to its full-frame Alpha 7 series with full sized image sensors. Although Sony has a leading position in mirrorless camera segment, it only accounts for 10% in total DSC market where demand growth is lower than market expectation. Olympus, Panasonic and Fujifilm Holding are also focusing on mirrorless camera products to strive DSC business to be profitable. Given increased competition in the mirrorless market, we find 10% OPM target in FY14 challenging. Figure 4: Breakdown of Digital Still Camera by type JPY billion Figure 5: M/S of Mirrorless camera in 2013/3 Source: CIPA Note: Shipment value base Source: Techno System Research Share price expectation After Sony Entertainment Investor Day on Nov 21, the stock price has been muted due to some disappointment in company s guidance on entertainment business with no major new announcement relating integration on software and hardware which the market had hoped to hear. In our view, as this event was the major catalyst for Sony s share price since third points questioned the value of ONE SONY, it did not convince investors that having both software content and electronic hardware businesses would generate synergies 6

7 for Sony s total value. Meanwhile, we believe the market will start to realize there is further downside risks to Sony s consumer electronics businesses given shrinking industry and potential charges associated with restructuring. Figure 6: Sony 12 months forward P/E band chart JPY Figure 7: Japan market 12 months forward P/E trend P/E (X) Figure 8: Sony More downside risk in stock price Figure 9: Sony: Price performance vs Panasonic and TOPIX (Jan2013=100) Decoupling with F/X movement Even a weaker yen trend did not help fuel share prices over the last 1 month, both USD/JPY and Euro/JPY upward momentum had been major positive factor for Sony share price as shown in the below charts. However, accelerating favorable F/X trend will not be enough to offset deeper downside risk in consumer electronic business, in our view. 7

8 Figure 10: Share price vs. USD/JPY FX trend ( Present) JPY Figure 11: Share price vs. USD/JPY FX trend ( Present) JPY Figure 12: Share price vs. EURO/JPY FX trend ( Present) JPY Figure 13: Share price vs. EURO/JPY FX trend ( Present) JPY 8

9 Sony: Summary of Financials Income Statement Cash flow statement in billions, year end Mar 2013/3 2014/3E 2015/3E 2016/3E in billions, year end Mar 2013/3 2014/3E 2015/3E 2016/3E Revenues 6,801 7,695 7,859 7,908 Net income COGS -4,155-4,766-4,778-6,828 Depr. & amortization Depreciation Other non-cash items Gross Profit 2,315 2,595 2, Change in working capital EBIT Cash flow from operations EBITDA Purchase of PP&E Net Interest Income Disposal/(purchase) -1, Pre-tax Profit Cash flow from investing -1, Tax Credit /(Expense) Free cash flow Net income Equity raised/(repaid) Shares outstanding 1,004 1,024 1,024 1,024 Debt raised/(repaid) EPS Other charges Sequential Growth Cash dividends Revenues 4.7% 13.2% 2.1% 0.6% Cash flow from financing Gross Profit 9.9% 12.1% 5.0% -74.1% Net change in cash EBIT NM NM 48.6% 18.1% Beginning cash 1,575 1,524 1,677 1,577 Pre-tax Profit NM NM 19.7% 15.8% Ending cash 1,524 1,677 1,577 1,150 EPS % -36.0% 130.4% 23.3% Balance sheet Ratio Analysis in billions, year end Mar 2013/3 2014/3E 2015/3E 2016/3E in billions, year end Mar 2013/3 2014/3E 2015/3E 2016/3E Cash and cash equivalents 1,524 1,677 1,577 1,150 Gross margin 34.0% 33.7% 34.7% 8.9% Accounts receivable 844 1,100 1,209 1,127 EBIT margin 3.4% 2.2% 3.1% 3.7% Inventories 710 1,214 1,076 1,102 EBITDA margin 8.2% 6.5% 7.7% 8.4% Others current assets 568 1,005 1,105 1,044 Net profit margin 0.6% 0.4% 0.8% 1.0% Current assets 3,647 4,995 4,968 4,424 COGS/sales 61.1% 61.9% 60.8% 86.3% LT investments 7,317 7,552 7,556 7,556 Sales per share growth 4.7% 10.9% 2.1% 0.6% Net fixed assets Sales growth 4.7% 13.2% 2.1% 0.6% Other long term assets 1,210 1,301 1,384 1,476 EBIT growth NM NM 48.6% 18.1% Total Assets 14,206 15,929 15,999 15,566 Net profit growth NM NM 130.4% 23.3% EPS growth % -36.0% 130.4% 23.3% ST Debt and CPLTD Account Payables 1,669 2,354 2,106 1,933 Interest coverage (x) NM Other current liabilities 2,402 3,034 3,337 3,669 Inventory Turnover (x) Total current liabilities 4,315 5,780 5,749 5,893 Net debt to total capital -14.6% -14.9% -13.5% -22.7% Long-term debt Net debt to equity -12.7% -13.0% -11.9% -18.5% Other Long term liabilities 2,729 2,700 2,677 2,655 Sales/assets Total Liabilities 11,522 13,086 13,032 12,538 Assets/equity ROE 1.7% 1.0% 2.2% 2.7% Shareholders' equity 2,684 2,842 2,967 3,027 Total Liabilities and Equity 14,206 15,929 15,999 15,566 BVPS 2, , , , Source: Company reports and J.P. Morgan estimates. 9

10 JPM Q-Profile Sony Corporation (JAPAN / Consumer Discretionary) As Of: 03-Jan-2014 Quant_Strategy@jpmorgan.com Local Share Price Current: Mth Forward EPS Current: , , , , , , , , , Earnings Yield (& local bond Yield) Current: 3% Implied Value Of Growth* Current: 44.90% 12% 12Mth fwd EY Japan BY Proxy 10% 8% 6% 4% 2% 0% -2% PE (1Yr Forward) Current: 30.2x Price/Book Value Current: 0.9x 100.0x 80.0x 60.0x 8.0x 7.0x 6.0x 5.0x PBV hist PBV Forward 40.0x 20.0x 0.0x -20.0x -40.0x 4.0x 3.0x 2.0x 1.0x 0.0x -1.0x -2.0x ROE (Trailing) Current: 3.25 Dividend Yield (Trailing) Current: Summary Sony Corporation As Of: 3-Jan-14 JAPAN SEDOL Local Price: 1, Consumer Discretionary Household Durables EPS: Latest Min Max Median Average 2 S.D.+ 2 S.D. - % to Min % to Max % to Med % to Avg 12mth Forward PE 30.23x % 148% -4% 13% P/BV (Trailing) 0.86x % 770% 72% 104% Dividend Yield (Trailing) % 134% -53% -39% ROE (Trailing) % 317% 20% -40% Implied Value of Growth 44.9% % 144% 4% 3% Source: Bloomberg, Reuters Global Fundamentals, IBES CONSENSUS, J.P. Morgan Calcs * Implied Value Of Growth = (1 - EY/Cost of equity) where cost of equity =Bond Yield + 5.0% (ERP) 10

11 Analyst Certification: The research analyst(s) denoted by an AC on the cover of this report certifies (or, where multiple research analysts are primarily responsible for this report, the research analyst denoted by an AC on the cover or within the document individually certifies, with respect to each security or issuer that the research analyst covers in this research) that: (1) all of the views expressed in this report accurately reflect his or her personal views about any and all of the subject securities or issuers; and (2) no part of any of the research analyst's compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst(s) in this report. For all Korea-based research analysts listed on the front cover, they also certify, as per KOFIA requirements, that their analysis was made in good faith and that the views reflect their own opinion, without undue influence or intervention. Important Disclosures Client: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as clients: Sony. Client/Investment Banking: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as investment banking clients: Sony. Client/Non-Investment Banking, Securities-Related: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as clients, and the services provided were non-investment-banking, securities-related: Sony. Client/Non-Securities-Related: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as clients, and the services provided were non-securities-related: Sony. Investment Banking (past 12 months): J.P. Morgan received in the past 12 months compensation from investment banking Sony. Investment Banking (next 3 months): J.P. Morgan expects to receive, or intends to seek, compensation for investment banking services in the next three months from Sony. Non-Investment Banking Compensation: J.P. Morgan has received compensation in the past 12 months for products or services other than investment banking from Sony. Company-Specific Disclosures: Important disclosures, including price charts, are available for compendium reports and all J.P. Morgan covered companies by visiting calling , or ing research.disclosure.inquiries@jpmorgan.com with your request. J.P. Morgan s Strategy, Technical, and Quantitative Research teams may screen companies not covered by J.P. Morgan. For important disclosures for these companies, please call or research.disclosure.inquiries@jpmorgan.com. Sony (6758.T, 6758 JT) Price Chart Price(Y) 11,946 9,955 7,964 5,973 3,982 1,991 0 Sep 06 N Y7,600 OW Y6,200 N N Y3,300 Y2,100 N Y2,100 N Y3,500 OW Y2,600 N Y920 N Y5,600 OW Y6,400 N N Y4,000 Y2,600 N Y1,770 N Y3,000 OW Y3,150OW Y3,000 Mar 08 Sep 09 Mar 11 NR N Y840N Y1,800 Y4,900 OW Y7,600 OW Y7,000 OW Y5,450 N Y2,900 N Y1,830 N Y2,300 N Y2,650N Y3,000 OW Y3,866 OW Y3,400 N Y1,500N Y1,250NR N Y1,600N Y1,600 Source: Bloomberg and J.P. Morgan; price data adjusted for stock splits and dividends. Break in coverage Aug 09, Oct 09, Sep 12 Date Rating Share Price (Y) 20-Oct-06 N Jan-07 N Feb-07 N Mar-07 OW Jan-08 OW Mar-08 OW Apr-08 OW Jul-08 OW Sep-08 N Oct-08 N Oct-08 N Nov-08 N Dec-08 N Mar-09 N Mar-09 N Apr-09 N May-09 N Nov-09 N Feb-10 N Apr-10 N May-10 N Jul-10 OW Dec-10 OW Price Target (Y) 11

12 27-Apr-11 OW May-11 OW Aug-11 OW Nov-11 N May-12 N Aug-12 NR Oct-12 N Nov-12 NR Dec-12 N Apr-13 N Jul-13 N Nov-13 N The chart(s) show J.P. Morgan's continuing coverage of the stocks; the current analysts may or may not have covered it over the entire period. J.P. Morgan ratings or designations: OW = Overweight, N= Neutral, UW = Underweight, NR = Not Rated Explanation of Equity Research Ratings, Designations and Analyst(s) Coverage Universe: J.P. Morgan uses the following rating system: Overweight [Over the next six to twelve months, we expect this stock will outperform the average total return of the stocks in the analyst s (or the analyst s team s) coverage universe.] Neutral [Over the next six to twelve months, we expect this stock will perform in line with the average total return of the stocks in the analyst s (or the analyst s team s) coverage universe.] Underweight [Over the next six to twelve months, we expect this stock will underperform the average total return of the stocks in the analyst s (or the analyst s team s) coverage universe.] Not Rated (NR): J.P. Morgan has removed the rating and, if applicable, the price target, for this stock because of either a lack of a sufficient fundamental basis or for legal, regulatory or policy reasons. The previous rating and, if applicable, the price target, no longer should be relied upon. An NR designation is not a recommendation or a rating. In our Asia (ex-australia) and U.K. small- and mid-cap equity research, each stock s expected total return is compared to the expected total return of a benchmark country market index, not to those analysts coverage universe. If it does not appear in the Important Disclosures section of this report, the certifying analyst s coverage universe can be found on J.P. Morgan s research website, Coverage Universe: Park, JJ: LG Display ( KS), LG Electronics ( KS), Panasonic (6752.T), SK Hynix ( KS), Samsung Electronics ( KS), Samsung SDI ( KS), Sony (6758.T), TSMC (2330.TW) J.P. Morgan Equity Research Ratings Distribution, as of January 1, 2014 Overweight (buy) Neutral (hold) Underweight (sell) J.P. Morgan Global Equity Research Coverage 43% 45% 12% IB clients* 57% 49% 36% JPMS Equity Research Coverage 43% 50% 7% IB clients* 75% 66% 59% *Percentage of investment banking clients in each rating category. For purposes only of FINRA/NYSE ratings distribution rules, our Overweight rating falls into a buy rating category; our Neutral rating falls into a hold rating category; and our Underweight rating falls into a sell rating category. Please note that stocks with an NR designation are not included in the table above. Equity Valuation and Risks: For valuation methodology and risks associated with covered companies or price targets for covered companies, please see the most recent company-specific research report at contact the primary analyst or your J.P. Morgan representative, or research.disclosure.inquiries@jpmorgan.com. Equity Analysts' Compensation: The equity research analysts responsible for the preparation of this report receive compensation based upon various factors, including the quality and accuracy of research, client feedback, competitive factors, and overall firm revenues. Registration of non-us Analysts: Unless otherwise noted, the non-us analysts listed on the front of this report are employees of non-us affiliates of JPMS, are not registered/qualified as research analysts under NASD/NYSE rules, may not be associated persons of JPMS, and may not be subject to FINRA Rule 2711 and NYSE Rule 472 restrictions on communications with covered companies, public appearances, and trading securities held by a research analyst account. Other Disclosures J.P. Morgan ("JPM") is the global brand name for J.P. Morgan Securities LLC ("JPMS") and its affiliates worldwide. J.P. Morgan Cazenove is a marketing name for the U.K. investment banking businesses and EMEA cash equities and equity research businesses of JPMorgan Chase & Co. and its subsidiaries. 12

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